HK Taxation & Exemption

Hong Kong's tax system is reputable for its simplicity, transparency, and low cost, coupled with the free flow of funds and legitimate legal system etc. Hong Kong attracts many foreigners to do business in Hong Kong. This article briefly describes the features, advantages and problems of Hong Kong's tax system. Introduction of Hong Kong Tax System Hong Kong's tax system is divided into direct tax and indirect tax. Direct taxes are levied directly on taxpayers, while indirect taxes are levied on services or goods. There are three direct taxes in Hong Kong: profits tax, salaries tax and stamp duty. Indirect taxes include stamp duty, gambling tax, rates, business registration fees,...

Hong Kong adopts the territorial source of principle for taxation, that is, only profits derived from Hong Kong are taxable in Hong Kong, while profits derived from other places are not subject to profits tax. In short, even if a limited company is established in Hong Kong, it can apply to the Inland Revenue Department (IRD) for those "offshore income" not derived from Hong Kong to be exempt from Hong Kong profits tax when it submits its Hong Kong profits tax return. The IRD has not clearly stipulated the rulings for exemption of offshore income. The source of profits must be determined based on the facts of the relevant case, so there is no general rule that can be applied to all...